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Official Opinion 95-30

Official Opinion 95-30

June 13, 1995

To:

Executive Director Georgia Housing and Finance Authority

Re:

The Georgia Housing and Finance Authority's power to continue to make loans pursuant to the United States Department of Agriculture's Farmers Home Administration Intermediary Relending Program until reaching the monetary limit of the existing promissory note is not affected by the "sunset" provision of O.C.G.A. ¿ 50-26-10(i)(2).

You have asked whether the Georgia Housing and Finance Authority ("GHFA") has the power to continue making loans pursuant to the Farmers Home Administration Intermediary Relending Program of the U.S. Department of Agriculture, notwithstanding the "sunset" provision of O.C.G.A. § 50-26-10(i)(2).

More specifically, GHFA, acting through GHFA Economic Development Financing, Inc. (GHFA EDFI), its subsidiary corporation created pursuant to O.C.G.A. § 50-26-8(a)(27), contracted on May 26, 1994, with the U.S. Department of Agriculture, Farmers Home Administration (FmHA), to act as a lending intermediary. Pursuant to that contract, the subsidiary issued its promissory note to FmHA in the amount of $2,000,000.00. The funds under the note are to be disbursed through GHFA EDFI as each loan is approved, until the program has reached the $2,000,000.00 face value of the note. The funds earned after the note is repaid are kept to form a revolving loan fund to continue the program without the need of additional funding. As of this date, a small portion of the $2,000,000.00 has been disbursed, and there are a number of loan applications at various stages of the loan approval process.

The sunset provision of O.C.G.A. § 50-26-10(i)(2) states in pertinent part as follows:

"(2) The authority shall not have outstanding at any one time bonds and notes for financing of enterprises . . . exceeding $140 million and shall not issue any such bonds or notes after June 30, 1995; . . . . " (Emphasis added.)

Two points should be noted concerning the plain language of the phrase "shall not issue any such . . . notes." First, GHFA EDFI's $2,000,000.00 note was issued May 26, 1994, well before the sunset date. Second, when GHFA EDFI makes a loan under the program, it does not issue a note, but instead receives a promissory note issued by the borrower.

While on its face this plain language seems to dispose of your question, the fact that all funds pursuant to the note are not yet disbursed implies an additional question: "Could each increment of funds disbursed under the original note be considered a new issuance of the note?" If so, then a loan amount received from FmHA and disbursed by GHFA EDFI after June 30, 1995, might be considered to violate the sunset provision. I have concluded, however, that such a result is not supported under the law and the facts of this case.

There are certain features of the promissory note and the intermediary relending program which might make it appear that each disbursement could be a new obligation which could offend the sunset provision. For example, FmHA must "approve" each recipient's application prior to disbursement of the funds for that loan. The note itself recognizes the full $2,000,000.00 of the note may not be advanced at the closing, and makes provisions for subsequent advances of principal. It also requires repayment of only the actual principal funds advanced, together with accrued interest from the date of actual disbursement.

However, these features are not sufficiently compelling to overcome the plain language of the Code and the weight of opposing factors. The note itself is merely one document in the intermediary relending program. Integral to the transaction is a federally imposed letter of conditions, a loan agreement, and a security agreement, all issued pursuant to 7 C.F.R. § 1948 et seq. The express purpose of the program is to "finance business facilities and community development projects in rural areas." 7 C.F.R. § 1948.101(b). The mechanism is intended to result (from the earnings after individual loans to recipients and the $2,000,000.00 loan are repaid) in a permanent revolving fund which may be used to continue the program. 7 C.F.R. § 1948.102(a)(13).

"The cardinal rule of construction is to ascertain the intention of the parties." O.C.G.A. § 13-2-3; Bowles v. Babcock & Wilcox Co., 209 Ga. 858 (4) (1953); Bridges v. Bridges, 216 Ga. 808, 810 (1961). Further, contracts should be interpreted or construed in their entirety, in connection with all facts and circumstances surrounding the parties at the time of entering into the contract. McCann v. Glynn Lumber Co., 199 Ga. 669, 673-74 (1945).

It is evident from the program documents that FmHA intended to provide a seed fund of $2,000,000.00 to establish a program for financing business facilities and community development projects in rural areas, and further intended that a permanent revolving fund would evolve. It is similarly evident that GHFA EDFI, under the aegis of GHFA, intended to obtain the same result. Most importantly, the Letter of Conditions stipulates in its first condition that "failure to relend funds in accordance with the approved work plan or Loan Agreement shall constitute grounds for a declaration of default and the demand for immediate and full repayment of the [$2,000,000.00] loan." In undertaking the obligation to operate the program, GHFA EDFI signed the letter of conditions, the promissory note to FmHA, and the loan agreement, thereby embarking upon the program of making funds available to qualified loan recipients. Loans were subsequently granted and applicants are presently awaiting final loan approval. FmHA has committed to providing the entire $2,000,000.00 and has advanced monies to fund existing loans.

Unlike a revolving credit account, wherein a line of credit is established and the borrower is entitled to draw, repay, and redraw funds up to the credit limit, the note executed by GHFA EDFI is a fixed loan amount, which may be drawn upon until exhausted, with the total obligation limited to the obligation incurred in the original note issued by GHFA. Moreover, terminating the intermediary relending program prior to either exhausting the available funds under the note or running out of qualified applicants would amount to "a failure to relend" and would constitute default and acceleration of all amounts then due under the note. Since GHFA could not accelerate the loans it has made under the program (those borrowers are not in default in the note they issued to GHFA), GHFA would be left to repay the original note without any financial resources to do so.

The Code's sunset provision is plainly stated as affecting "notes" issued, not amounts owed, after the date specified. This plain language reinforces the interpretation that it is the note itself which must be issued prior to the sunset date, not the proceeds which must be disbursed. See O.C.G.A. § 1-3-1(b) (ordinary signification attached to all words).

With the intermediary loan program being now operational, GHFA is contractually obligated to carry out the program to complete its intended purpose -- the creation of a permanent revolving loan fund without monetary obligation to FmHA. The note was clearly issued before the sunset date. GHFA itself will continue to exist as an operating authority well beyond the sunset date. The only limitation effected by the sunset provision is that GHFA may not, after June 30, 1995, issue a new note to increase the FmHA funds available to the intermediary relending program. Compare 1980 Op. Att'y Gen. 80-49 (board may continue in existence for the purpose of concluding its affairs and activities).

In conclusion it is my opinion that the Georgia Housing and Finance Authority's power to continue to make loans pursuant to the United States Department of Agriculture's Farmers Home Administration Intermediary Relending Program until reaching the monetary limit of the existing promissory note is not affected by the "sunset" provision of O.C.G.A. § 50-26-10(i)(2).